Key investment points:
Event:
In order to maintain the reasonable and abundant liquidity of the banking system, on January 17, 2022, the people’s Bank of China carried out RMB 700 billion medium-term lending facility (MLF) operation and RMB 100 billion open market reverse repurchase operation. The bid winning interest rate of medium-term lending facility (MLF) operation and open market reverse repurchase operation decreased by 10 basis points.
The people’s Bank of China authorizes the national interbank lending center to announce that the quoted interest rate (LPR) of the loan market on January 20, 2022 is: 1-year LPR is 3.7%, and more than 5-year LPR is 4.6%. The above LPR is valid until the next LPR release.
Compared with December 2021, the published one-year LPR decreased by 10bp and the five-year LPR decreased by 5bp. Among them, the 1-year LPR decreased for two consecutive months, with a cumulative decrease of 15bp, and the 5-year LPR decreased by 5bp in the same period.
Comments are as follows:
The interest rate will be cut after reducing the reserve requirement for one month, and the loose pace is higher than we expected. On December 15, 2021, the central bank comprehensively reduced the reserve requirement by 0.5 percentage points. On December 20, the one-year LPR decreased by 5bp. At that time, we expect the easing policy to come to an end in the short term. However, one month later, the central bank lowered the 1-year MLF interest rate and 7-day reverse repo interest rate by 10bp on January 17, 2022, and then the 1-year LPR and 5-year LPR decreased by 10bp and 5bp respectively on January 20. Within a month, the central bank cut the reserve requirement first and then the interest rate. The pace of easing exceeded our expectations. In addition, after the central bank lowered the one-year MLF and 7-day reverse repo interest rate on January 17, the market fully expected the decline of LPR on January 20, and focused more on the decline of LPR. On January 20, the one-year LPR decreased by 10bp, which was higher than our expectation, and the five-year LPR decreased by 5bp, which was in line with our expectation.
The speed of policy easing responds to the urgency of stabilizing growth. In the second half of 2021, the downward pressure on the economy has continued to increase. Among the three carriages, only the net export growth rate is outstanding, and the growth rates of fixed asset investment, real estate investment and consumption are declining. The faster than expected pace of policy easing since December 2021 means that the current downward pressure on the economy exceeds our understanding, and the pace of subsequent steady growth may accelerate and the industry may extend. In terms of industry, in addition to focusing on the carbon neutral industrial chain, the current macro-economy also needs to be moderately ahead of infrastructure, relax the margin of real estate, enhance China’s consumption and other policies to form a joint force for steady growth. From the perspective of credit, the interest rate cut after one month means that the current credit demand of the real economy is insufficient. In addition to key support areas such as small, medium-sized and micro enterprises and carbon neutralization, the marginal improvement of financing in traditional areas such as real estate, local government platforms and infrastructure projects is also needed to avoid credit collapse.
This interest rate cut takes into account both structural and inclusive. It is noted that the interest rate cut still has obvious structure. The one-year LPR has decreased by 10bp and the five-year LPR has decreased by 5bp. Since December last year, the one-year LPR has decreased by 15bp and the five-year LPR has decreased by 5bp. There is a large difference between the two. The loan term of small and medium-sized enterprises is concentrated within one year. Therefore, the policy intention is more biased towards the real economy. At the same time, the decline of 5-year LPR is significantly lower than that of 1-year LPR, which means that the general direction of non speculation in housing remains unchanged. It is worth noting that the first decline in the five-year LPR also reflects the inclusive nature of this interest rate cut, indicating that the current bank’s attitude towards real estate loans has shifted from marginal to positive. We can understand the significance of this marginal positive shift to steady growth from a more optimistic perspective.
The debt stabilization policy is well paved, and the decline in net interest margin is expected to be significantly less than that of this interest rate cut. This interest rate cut has sufficient policy foreshadowing for stabilizing liabilities: first, in the second half of 2021, the people’s Bank of China has reduced the reserve requirement twice, which has reduced the capital cost of banks to a certain extent. In mid July and mid December, the people’s Bank of China has comprehensively reduced the reserve requirement twice by 0.5 percentage points. The above policies have saved the capital cost of banks by about 28 billion yuan per year; Second, the interest rate of targeted support tools has decreased. In early November 2021, the people’s Bank of China launched the carbon neutralization support tool, and the capital cost of the support tool is 1.75%, which is the lowest interest rate currently implemented by targeted tools. In addition, in early December, the people’s Bank of China reduced the interest rate of small re loans for agricultural support by 25bp; Third, the supervision of deposit interest rates was optimized, and the listing interest rates of medium and long-term deposits were lowered. In June 2021, the market interest rate pricing self-discipline mechanism optimized the way to determine the self-discipline upper limit of deposit interest rate, which was originally formed by multiplying the deposit benchmark interest rate by a certain multiple, but was determined by adding a certain base point to the deposit benchmark interest rate. From the perspective of listing interest rate, the listing interest rate of national bank deposits remained basically unchanged, and the listing interest rate of medium and long-term deposits of some local legal person financial institutions decreased. It is estimated that the direct impact of this LPR reduction on the bank’s net interest margin is about 7bp, and the cumulative impact on the net interest margin is about 8bp compared with the one-year LPR reduction of 5bp in December 2021. Due to the small decline of 5-year LPR, banks with a high proportion of housing loans are less affected, such as China Merchants Bank Co.Ltd(600036) , Ping An Bank Co.Ltd(000001) , Postal Savings Bank Of China Co.Ltd(601658) , China Construction Bank Corporation(601939) , etc.
The easing policy may come to an end in the short term, and the future policy rhythm may move with the economic and financial data in the first quarter. From December 2021 to January 2022, the rhythm of reducing reserve requirements and interest rates is relatively compact. Referring to the previous interest rate cut cycle, the interest rate cut is not large. In addition, the current downward pressure on the economy is prominent. We expect that there is still room for further easing in the future. However, from the perspective of rhythm, the easing policy may come to an end in the short term, and the performance of economic and financial data in the first quarter may be the main reference basis for the rhythm and range of easing in the future.
Investment suggestion: the direct impact of this LPR decline on the bank’s net interest margin is about 7bp. The easing policy may come to an end in the short term, and the space and pace of policy easing in the future may depend on the performance of macroeconomic data in the first quarter. In the fourth quarter of 2021, the industry’s performance growth and asset quality were better than expected. Compared with the macro disturbance, we paid more attention to the improvement of the industry’s “internal strength”. It is considered that the extremely low valuation level of the current banking sector fully reflects the pessimistic expectations of the market on the credit risk exposure and macroeconomic downturn of the real estate industry. At the same time, considering the good performance growth and continuously improved asset quality of the bank, it is considered that the current sector has high allocation value and maintains the investment rating of “stronger than the market” of the industry. It is suggested to focus on the head state-owned banks and joint-stock banks with solid asset quality, as well as the head urban commercial banks and rural commercial banks in regional economically developed areas.
Risk tip: the asset quality has deteriorated significantly, and the macro-economy has gone down more than expected.
